Limit on
itemized deductions. For
2004, if your adjusted gross
income is more than $142,700
($71,350 if you are married
filing separately), you may have
to reduce the amount of certain
itemized deductions, including
most miscellaneous deductions.
See chapter 31 for more
information.
Introduction
This chapter explains which
expenses you can claim as
miscellaneous itemized
deductions on Schedule A (Form
1040). You must reduce the total
of most miscellaneous itemized
deductions by 2% of your
adjusted gross income. This
chapter covers the following
topics.
Deductions subject
to the 2% limit.
Deductions not
subject to the 2% limit.
Expenses you cannot
deduct.
You must keep records to
verify your deductions. You
should keep receipts, canceled
checks, financial account
statements, and other
documentary evidence. For more
information on recordkeeping,
get Publication 552,
Recordkeeping for Individuals.
Useful Items - You
may want to see:
Publication
529
Miscellaneous Deductions
535
Business Expenses
587
Business Use of Your
Home (Including Use by
Daycare Providers)
946
How To Depreciate
Property
Form
(and Instructions)
2106
Employee Business
Expenses
2106-EZ
Unreimbursed Employee
Business Expenses
Deductions Subject
to the 2% Limit
You can deduct certain
expenses as miscellaneous
itemized deductions on Schedule
A (Form 1040). You can claim the
amount of expenses that is more
than 2% of your adjusted gross
income. You figure your
deduction on Schedule A by
subtracting 2% of your adjusted
gross income from the total
amount of these expenses. Your
adjusted gross income is the
amount on line 37, Form 1040.
Generally, you apply the 2%
limit after you apply any other
deduction limit. For example,
you apply the 50% (or 70%) limit
on business-related meals and
entertainment (discussed in
chapter 28) before you apply the
2% limit.
Deductions subject to the 2%
limit are discussed in the three
categories in which you report
them on Schedule A.
Unreimbursed
employee expenses (line
20).
Tax preparation fees
(line 21).
Other expenses (line
22).
Impairment-related work
expenses.
If you have a physical or
mental disability, certain
expenses you incur that
allow you to work may not be
subject to the 2% limit. See
Impairment-Related Work
Expenses under
Deductions Not Subject to
the 2% Limit,
later.
Performing
artists.
If you are a qualified
performing artist, you may
be able to deduct your
employee business expenses
as an adjustment to income
rather than as a
miscellaneous itemized
deduction. See
Special Rules in
chapter 28 if you need more
information about this
exception.
State and
local government officials
paid on a fee basis.
If you performed services
as an employee of a state or
local government and you
were paid in whole or in
part on a fee basis, you can
claim your trade or business
expenses in performing those
services as an adjustment to
income, rather than as a
miscellaneous deduction. See
Officials Paid on a Fee
Basis under
Deductions Not Subject to
the 2% Limit,
later.
Armed
Forces reservists.
If you are a member of a
reserve component of the
Armed Forces of the United
States, and you travel more
than 100 miles away from
home in connection with your
performance of services as a
member of the reserves, you
may be able to deduct some
of your reserve-related
travel costs as an
adjustment to gross income
rather than as an itemized
deduction. For more
information, see
Armed Forces Reservists
Traveling More Than 100
Miles From Home,
under Deductions Not Subject
to the 2% Limit,
later.
Educators.
If you were an eligible
educator in 2004, you can
deduct up to $250 of
qualified expenses you paid
in 2004 as an adjustment to
income rather than as an
itemized deduction. See
Educator Expenses
in chapter 21.
Unreimbursed
Employee
Expenses (Line
20)
You can deduct only
unreimbursed employee
expenses that are:
Paid or incurred
during your tax
year,
For carrying on
your trade or
business of being an
employee, and
Ordinary and
necessary.
An expense is ordinary if
it is common and accepted in
your type of trade or
business. An expense is
necessary if it is
appropriate and helpful to
your trade or business.
Examples of unreimbursed
employee expenses are listed
next. The list is followed
by discussions of additional
unreimbursed employee
expenses.
Business bad
debt of an employee.
Education that
is work related.
(See chapter 29.)
Legal fees
related to your job.
Licenses and
regulatory fees.
Malpractice
insurance premiums.
Medical
examinations
required by an
employer.
Occupational
taxes.
Passport for a
business trip.
Subscriptions to
professional
journals and trade
magazines related to
your work.
Travel,
transportation,
entertainment, and
gift related to your
work. (See chapter
28.)
Business
Liability
Insurance
You can deduct
insurance premiums you
paid for protection
against personal
liability for wrongful
acts on the job.
Damages for
Breach of
Employment
Contract
If you break an
employment contract, you
can deduct damages you
pay your former employer
that are attributable to
the pay you received
from that employer.
Depreciation
on Computers
or Cellular
Telephones
You can claim a
depreciation deduction
for a computer or
cellular telephone that
you use in your work as
an employee if its use
is:
For the
convenience of
your employer,
and
Required as
a condition of
your employment.
For more information
about the rules and
exceptions to the rules
affecting the allowable
deductions for a home
computer or cellular
telephone, see
Publication 529.
Dues to
Chambers of
Commerce and
Professional
Societies
You may be able to
deduct dues paid to
professional
organizations (such as
bar associations and
medical associations)
and to chambers of
commerce and similar
organizations, if
membership helps you
carry out the duties of
your job. Similar
organizations include:
Boards of
trade,
Business
leagues,
Civic or
public service
organizations,
Real estate
boards, and
Trade
associations.
You cannot deduct
dues paid to an
organization if one of
its main purposes is to:
Conduct
entertainment
activities for
members or their
guests, or
Provide
members or their
guests with
access to
entertainment
facilities.
Dues paid to airline,
hotel, and luncheon
clubs are not
deductible. See
Club Dues under
Nondeductible
Expenses,
later.
Lobbying and
political
activities.
You may not be
able to deduct that
part of your dues
that is for certain
lobbying and
political
activities. See
Dues used for
lobbying under
Lobbying
Expenses, later.
Educator
Expenses
Over Limit
If you were an
educator in 2004 and you
had qualified expenses
that were more than you
can deduct on Form 1040,
line 23, you can deduct
the rest as an itemized
deduction subject to the
2% limit. See
Educator Expenses
in chapter 21.
Home Office
If you use a part of
your home regularly and
exclusively for business
purposes, you may be
able to deduct a part of
the operating expenses
and depreciation of your
home.
You can claim this
deduction for the
business use of a part
of your home only if you
use that part of your
home regularly and
exclusively:
As your
principal place
of business for
any trade or
business,
As a place
to meet or deal
with your
patients,
clients, or
customers in the
normal course of
your trade or
business, or
In the case
of a separate
structure not
attached to your
home, in
connection with
your trade or
business.
The regular and
exclusive business use
must be for the
convenience of your
employer and not just
appropriate and helpful
in your job. Get
Publication 587 for more
detailed information and
a worksheet.
Job Search
Expenses
You can deduct
certain expenses you
have in looking for a
new job in your present
occupation, even if you
do not get a new job.
You cannot deduct
these expenses if:
You are
looking for a
job in a new
occupation,
There was a
substantial
break between
the ending of
your last job
and your looking
for a new one,
or
You are
looking for a
job for the
first time.
Employment and
outplacement agency
fees. You can
deduct employment
and outplacement
agency fees you pay
in looking for a new
job in your present
occupation.
Employer pays
you back.
If, in a later
year, your employer
pays you back for
employment agency
fees, you must
include the amount
you receive in your
gross income up to
the amount of your
tax benefit in the
earlier year. (See
Recoveries in chapter
13.)
Employer pays
the employment
agency.
If your employer
pays the fees
directly to the
employment agency
and you are not
responsible for
them, you do not
include them in your
gross income.
Résumé.
You can deduct
amounts you spend
for typing,
printing, and
mailing copies of a
résumé to
prospective
employers if you are
looking for a new
job in your present
occupation.
Travel and
transportation
expenses.
If you travel to
an area and, while
there, you look for
a new job in your
present occupation,
you may be able to
deduct travel
expenses to and from
the area. You can
deduct the travel
expenses if the trip
is primarily to look
for a new job. The
amount of time you
spend on personal
activity compared to
the amount of time
you spend in looking
for work is
important in
determining whether
the trip is
primarily personal
or is primarily to
look for a new job.
Even if you cannot
deduct the travel
expenses to and from
an area, you can
deduct the expenses
of looking for a new
job in your present
occupation while in
the area.
You may choose to
use the standard
mileage rate to
figure your car
expenses. The
standard mileage
rate for 2004 is 37˝
cents per mile. See
chapter 28 for more
information.
Licenses and
Regulatory
Fees
You can deduct the
amount you pay each year
to state or local
governments for licenses
and regulatory fees for
your trade, business, or
profession.
Occupational
Taxes
You can deduct an
occupational tax charged
at a flat rate by a
locality for the
privilege of working or
conducting a business in
the locality. If you are
an employee, you can
claim occupational taxes
only as a miscellaneous
deduction subject to the
2% limit; you cannot
claim them as a
deduction for taxes
elsewhere on your
return.
Repayment of
Income Aid
Payment
An “income
aid payment” is
one that is received
under an employer's plan
to aid employees who
lose their jobs because
of lack of work. If you
repay a lump-sum income
aid payment that you
received and included in
income in an earlier
year, you can deduct the
repayment.
Research
Expenses of
a College
Professor
If you are a college
professor, you can
deduct research
expenses, including
travel expenses, for
teaching, lecturing, or
writing and publishing
on subjects that relate
directly to the field of
your teaching duties.
You must have undertaken
the research as a means
of carrying out the
duties expected of a
professor and without
expectation of profit
apart from salary.
However, you cannot
deduct the cost of
travel as a form of
education.
Tools Used
in Your Work
Generally, you can
deduct amounts you spend
for tools used in your
work if the tools wear
out and are thrown away
within 1 year from the
date of purchase. You
can depreciate the cost
of tools that have a
useful life
substantially beyond the
tax year. For more
information about
depreciation, see
Publication 946.
Union Dues
and Expenses
You can deduct dues
and initiation fees you
pay for union
membership.
You can also deduct
assessments
for benefit payments
to unemployed union
members. However, you
cannot deduct the part
of the assessments or
contributions that
provides funds for the
payment of sick,
accident, or death
benefits. Also, you
cannot deduct
contributions to a
pension fund, even if
the union requires you
to make the
contributions.
You may not be able
to deduct amounts you
pay to the union that
are related to certain
lobbying and political
activities. See
Lobbying Expenses
under
Nondeductible
Expenses,
later.
Work Clothes
and Uniforms
You can deduct the
cost and upkeep of work
clothes if the following
two requirements are
met.
You must
wear them as a
condition of
your employment.
The clothes
are not suitable
for everyday
wear.
It is not enough
that you wear
distinctive clothing.
The clothing must be
specifically required by
your employer. Nor is it
enough that you do not,
in fact, wear your work
clothes away from work.
The clothing must not be
suitable for taking the
place of your regular
clothing.
Examples of workers
who may be able to
deduct the cost and
upkeep of work clothes
are: delivery workers,
firefighters, health
care workers, law
enforcement officers,
letter carriers,
professional athletes,
and transportation
workers (air, rail, bus,
etc.).
Musicians and
entertainers can deduct
the cost of theatrical
clothing and accessories
if they are not suitable
for everyday wear.
However, work
clothing consisting of
white cap, white shirt
or white jacket, white
bib overalls, and
standard work shoes,
which a painter is
required by his union to
wear on the job, is not
distinctive in character
or in the nature of a
uniform. Similarly, the
costs of buying and
maintaining blue work
clothes worn by a welder
at the request of a
foreman are not
deductible.
Protective clothing.
You can deduct the
cost of protective
clothing required in
your work, such as
safety shoes or
boots, safety
glasses, hard hats,
and work gloves.
Examples of
workers who may be
required to wear
safety items are:
carpenters, cement
workers, chemical
workers,
electricians,
fishing boat crew
members, machinists,
oil field workers,
pipe fitters,
steamfitters, and
truck drivers.
Military uniforms.
You generally
cannot deduct the
cost of your
uniforms if you are
on full-time active
duty in the armed
forces. However, if
you are an armed
forces reservist,
you can deduct the
unreimbursed cost of
your uniform if
military regulations
restrict you from
wearing it except
while on duty as a
reservist. In
figuring the
deduction, you must
reduce the cost by
any nontaxable
allowance you
receive for these
expenses.
If local military
rules do not allow
you to wear fatigue
uniforms when you
are off duty, you
can deduct the
amount by which the
cost of buying and
keeping up these
uniforms is more
than the uniform
allowance you
receive.
You can deduct the
cost of your
uniforms if you are
a civilian faculty
or staff member of a
military school.
Tax
Preparation Fees
(Line 21)
You can usually deduct
tax preparation fees in the
year you pay them. Thus, on
your 2004 return, you can
deduct fees paid in 2004 for
preparing your 2003 return.
These fees include the cost
of tax preparation software
programs and tax
publications. They also
include any fee you paid for
electronic filing of your
return. However, if you paid
your tax by credit card, you
cannot deduct the
convenience fee you were
charged.
Deduct expenses of
preparing tax schedules
relating to profit or loss
from business (Schedule C or
C-EZ), rentals or royalties
(Schedule E), or farm income
and expenses (Schedule F) on
the appropriate schedule.
Deduct the expenses of
preparing the remainder of
the return on line 21,
Schedule A (Form 1040).
Other
Expenses (Line
22)
You can deduct certain
other expenses as
miscellaneous itemized
deductions subject to the
2%-of-adjusted-gross-income
limit. These are expenses
you pay:
To produce or
collect income that
must be included in
your gross income,
To manage,
conserve, or
maintain property
held for producing
such income, or
To determine,
contest, pay, or
claim a refund of
any tax.
You can deduct expenses
you pay for the purposes in
(1) and (2) above only if
they are reasonably and
closely related to these
purposes. Some of these
other expenses are explained
in the following
discussions.
If the expenses you pay
produce income that is only
partially taxable, see
Tax-Exempt Income Expenses,
later, under
Nondeductible Expenses.
Appraisal
Fees
You can deduct
appraisal fees if you
pay them to figure a
casualty loss or the
fair market value of
donated property.
Certain
Casualty and
Theft Losses
You can deduct a
casualty or theft loss
as a miscellaneous
itemized deduction
subject to the 2% limit
if you used the damaged
or stolen property in
performing services as
an employee. First
report the loss in
Section B of Form 4684,
Casualties and Thefts.
You may also have to
include the loss on Form
4797, Sales of Business
Property, if you are
otherwise required to
file that form. To
figure your deduction,
add all casualty or
theft losses from this
type of property
included on line 32 of
Form 4684, line 38b of
Form 4684, or line 18a
of Form 4797. For other
casualty and theft
losses, see chapter 27.
Clerical
Help and
Office Rent
You can deduct office
expenses, such as rent
and clerical help, that
you have in connection
with your investments
and collecting the
taxable income on them.
Depreciation
on Home
Computer
You can deduct
depreciation on your
home computer if you use
it to produce income
(for example, to manage
your investments that
produce taxable income).
You generally must
depreciate the computer
using the straight line
method over the
Alternative Depreciation
System (ADS) recovery
period. But if you work
as an employee and also
use the computer in that
work, see Publication
946.
Excess
Deductions
of an Estate
If an estate's total
deductions in its last
tax year are more than
its gross income for
that year, the
beneficiaries succeeding
to the estate's property
can deduct the excess.
Do not include
deductions for the
estate's personal
exemption and charitable
contributions when
figuring the estate's
total deductions. The
beneficiaries can claim
the deduction only for
the tax year in which,
or with which, the
estate terminates,
whether the year of
termination is a normal
year or a short tax
year. For more
information, see
Termination of
Estate in
Publication 559,
Survivors, Executors,
and Administrators.
Fees to
Collect
Interest and
Dividends
You can deduct fees
you pay to a broker,
bank, trustee, or
similar agent to collect
your taxable bond
interest or dividends on
shares of stock. But you
cannot deduct a fee you
pay to a broker to buy
investment property,
such as stocks or bonds.
You must add the fee to
the cost of the
property.
You cannot deduct the
fee you pay to a broker
to sell securities. You
can use the fee only to
figure gain or loss from
the sale. See the
instructions for columns
(d) and (e) of Schedule
D (Form 1040) for
information on how to
report the fee.
Hobby
Expenses
You can generally
deduct hobby expenses,
but only up to the
amount of hobby income.
A hobby is not a
business because it is
not carried on to make a
profit. See
Activity not for
profit in
chapter 13 under
Other Income.
Indirect
Deductions
of
Pass-Through
Entities
Pass-through entities
include partnerships, S
corporations, and mutual
funds that are not
publicly offered.
Deductions of
pass-through entities
are passed through to
the partners or
shareholders. The
partners or shareholders
can deduct their share
of passed-through
deductions for
investment expenses as
miscellaneous itemized
deductions subject to
the 2% limit.
Example.
You are a member
of an investment
club that is formed
solely to invest in
securities. The club
is treated as a
partnership. The
partnership's income
is solely from
taxable dividends,
interest, and gains
from sales of
securities. In this
case, you can deduct
your share of the
partnership's
operating expenses
as miscellaneous
itemized deductions
subject to the 2%
limit. However, if
the investment club
partnership has
investments that
also produce
nontaxable income,
you cannot deduct
your share of the
partnership's
expenses that
produce the
nontaxable income.
Publicly offered
mutual funds.
Publicly offered
mutual funds do not
pass deductions for
investment expenses
through to
shareholders. A
mutual fund is “publicly
offered” if
it is:
Continuously
offered
pursuant to
a public
offering,
Regularly
traded on an
established
securities
market, or
Held by
or for at
least 500
persons at
all times
during the
tax year.
A publicly offered
mutual fund will
send you a Form
1099-DIV, Dividends
and Distributions,
or a substitute
form, showing the
net amount of
dividend income
(gross dividends
minus investment
expenses). This net
figure is the amount
you report on your
return as income.
You cannot deduct
investment expenses.
Information returns.
You should receive
information returns
from pass-through
entities.
Partnerships and
S corporations.
These entities
issue Schedule K-1,
which lists the
items and amounts
you must report and
identifies the tax
return schedules and
lines to use.
Nonpublicly
offered mutual
funds.
These funds will
send you a Form
1099-DIV, or a
substitute form,
showing your share
of gross income and
investment expenses.
You can claim the
expenses only as a
miscellaneous
itemized deduction
subject to the 2%
limit.
Investment
Fees and
Expenses
You can deduct
investment fees,
custodial fees, trust
administration fees, and
other expenses you paid
for managing your
investments that produce
taxable income.
Legal
Expenses
You can usually
deduct legal expenses
that you incur in
attempting to produce or
collect taxable income
or that you pay in
connection with the
determination,
collection, or refund of
any tax.
You can also deduct
legal expenses that are:
Related to
either doing or
keeping your
job, such as
those you paid
to defend
yourself against
criminal charges
arising out of
your trade or
business,
For tax
advice related
to a divorce, if
the bill
specifies how
much is for tax
advice and it is
determined in a
reasonable way,
or
To collect
taxable alimony.
You can deduct
expenses of resolving
tax issues relating to
profit or loss from
business (Schedule C or
C-EZ), rentals or
royalties (Schedule E),
or farm income and
expenses (Schedule F) on
the appropriate
schedule. You deduct
expenses of resolving
nonbusiness tax issues
on Schedule A (Form
1040). See
Tax Preparation Fees,
earlier.
Loss on
Deposits
For information on
whether, and if so, how,
you may deduct a loss on
your deposit in a
qualified financial
institution, see
Deposit in Insolvent
or Bankrupt Financial
Institution
in chapter 15.
Repayments
of Income
If you had to repay
an amount that you
included in income in an
earlier year, you may be
able to deduct the
amount you repaid. If
the amount you had to
repay was ordinary
income of $3,000 or
less, the deduction is
subject to the 2% limit.
If it was more than
$3,000, see
Repayments Under
Claim of Right under
Deductions Not
Subject to the 2% Limit,
later.
Repayments
of Social
Security
Benefits
For information on
how to deduct your
repayments of certain
social security
benefits, see
Repayments More Than
Gross Benefits in chapter 12.
Safe Deposit
Box Rent
You can deduct safe
deposit box rent if you
use the box to store
taxable income-producing
stocks, bonds, or
investment-related
papers and documents.
You cannot deduct the
rent if you use the box
only for jewelry, other
personal items, or
tax-exempt securities.
Service
Charges on
Dividend
Reinvestment
Plans
You can deduct
service charges you pay
as a subscriber in a
dividend reinvestment
plan. These service
charges include payments
for:
Holding
shares acquired
through a plan,
Collecting
and reinvesting
cash dividends,
and
Keeping
individual
records and
providing
detailed
statements of
accounts.
Trustee's
Administrative
Fees for IRA
Trustee's
administrative fees that
are billed separately
and paid by you in
connection with your
individual retirement
arrangement (IRA) are
deductible (if they are
ordinary and necessary)
as a miscellaneous
itemized deduction
subject to the 2% limit.
For more information
about IRAs, see chapter
18.
Deductions Not
Subject to the 2%
Limit
You can deduct the items
listed below as miscellaneous
itemized deductions. They are
not subject to the 2% limit.
Report these items on line 27,
Schedule A (Form 1040).
List of
Deductions
Each of the following
items is discussed in detail
after the list.
Amortizable
premium on taxable
bonds.
Casualty and
theft losses from
income-producing
property.
Federal estate
tax on income in
respect of a
decedent.
Gambling losses
up to the amount of
gambling winnings.
Impairment-related
work expenses of
persons with
disabilities.
Repayments of
more than $3,000
under a claim of
right.
Unrecovered
investment in an
annuity.
Amortizable
Premium on
Taxable
Bonds
In general, if the
amount you pay for a
bond is greater than its
stated principal amount,
the excess is bond
premium. You can elect
to amortize the premium
on taxable bonds. The
amortization of the
premium is generally an
offset to interest
income on the bond
rather than a separate
deduction item.
Part of the premium
on some bonds may be a
miscellaneous deduction
not subject to the 2%
limit. For more
information, see
Amortizable Premium
on Taxable Bonds
in Publication 529, and
Bond Premium
Amortization
in chapter 3 of
Publication 550,
Investment Income and
Expenses.
Certain
Casualty and
Theft Losses
You can deduct a
casualty or theft loss
as a miscellaneous
itemized deduction not
subject to the 2% limit
if the damaged or stolen
property was
income-producing
property (property held
for investment, such as
stocks, notes, bonds,
gold, silver, vacant
lots, and works of art).
First, report the loss
in Section B of Form
4684. You may also have
to include the loss on
Form 4797 if you are
otherwise required to
file that form. To
figure your deduction,
add all casualty or
theft losses from this
type of property
included on line 32 of
Form 4684, line 38b of
Form 4684, or line 18a
of Form 4797. For more
information on casualty
and theft losses, see
chapter 27.
Federal
Estate Tax
on Income in
Respect of a
Decedent
You can deduct the
federal estate tax
attributable to income
in respect of a decedent
that you as a
beneficiary include in
your gross income.
Income in respect of the
decedent is gross income
that the decedent would
have received had death
not occurred and that
was not properly
includible in the
decedent's final income
tax return. See
Publication 559 for more
information.
Gambling
Losses Up to
the Amount
of Gambling
Winnings
You must report the
full amount of your
gambling winnings for
the year on Form 1040,
line 21. You deduct your
gambling losses for the
year on line 27,
Schedule A (Form 1040).
You cannot deduct
gambling losses that are
more than your winnings.
You cannot reduce
your gambling winnings
by your gambling losses
and report the
difference. You must
report the full amount
of your winnings as
income and claim your
losses (up to the amount
of winnings) as an
itemized deduction.
Therefore, your records
should show your
winnings separately from
your losses.
Diary of winnings and
losses.
You must
keep an accurate diary
or similar record of
your losses and
winnings.
Your diary should
contain at least the
following information.
The date and
type of your
specific wager
or wagering
activity.
The name and
address or
location of the
gambling
establishment.
The names of
other persons
present with you
at the gambling
establishment.
The
amount(s) you
won or lost.
See Publication 529
for more information.
Impairment-Related
Work
Expenses
If you have a
physical or mental
disability that limits
your being employed, or
substantially limits one
or more of your major
life activities, such as
performing manual tasks,
walking, speaking,
breathing, learning, and
working, you can deduct
your impairment-related
work expenses.
Impairment-related
work expenses are
ordinary and necessary
business expenses for
attendant care services
at your place of work
and for other expenses
in connection with your
place of work that are
necessary for you to be
able to work.
Where to report.
If you are an
employee, you enter
impairment-related
work expenses on
Form 2106 or Form
2106-EZ. Enter on
line 27, Schedule A
(Form 1040), that
part of the amount
on line 10 of Form
2106, or line 6 of
Form 2106-EZ, that
is related to your
impairment. Enter
the amount that is
unrelated to your
impairment on line
20, Schedule A (Form
1040).
Repayments
Under Claim
of Right
If you had to repay
more than $3,000 that
you included in your
income in an earlier
year because at the time
you thought you had an
unrestricted right to
it, you may be able to
deduct the amount you
repaid or take a credit
against your tax. See
Repayments in chapter 13 for
more information.
Unrecovered
Investment
in Annuity
A retiree who
contributed to the cost
of an annuity can
exclude from income a
part of each payment
received as a tax-free
return of the retiree's
investment. If the
retiree dies before the
entire investment is
recovered tax free, any
unrecovered investment
can be deducted on the
retiree's final income
tax return. See chapter
11 for more information
about the tax treatment
of pensions and
annuities.
Officials
Paid on a Fee
Basis
If you are a fee-basis
official, you can claim your
expenses in performing
services in that job as an
adjustment to income rather
than as a miscellaneous
itemized deduction. To
qualify as a fee-basis
official, you must be
employed by a state or local
government and be paid in
whole or in part on a fee
basis.
Where
to report. If you
qualify as a fee-basis
official, you should
first complete Form 2106
or Form 2106-EZ. Then
include your expenses in
performing services in
that job (line 10 of
Form 2106 or line 6 of
Form 2106-EZ) on line 24
of Form 1040.
Armed Forces
Reservists
Traveling More
Than 100 Miles
From Home
If you are a member of a
reserve component of the
Armed Forces of the United
States and you travel more
than 100 miles away from
home in connection with your
performance of services as a
member of the reserves, you
can deduct your travel
expenses as an adjustment to
gross income rather than as
a miscellaneous itemized
deduction. The amount of
expenses you can deduct as
an adjustment to gross
income is limited to the
regular federal
per diem rate
(for lodging, meals, and
incidental expenses) and the
standard mileage rate (for
car expenses) plus any
parking fees, ferry fees,
and tolls. For more
information, see Publication
463.
Member
of a reserve component.
You are a member of a
reserve component of the
Armed Forces of the
United States if you are
in the Army, Naval,
Marine Corps, Air Force,
or Coast Guard Reserve,
the Army National Guard
of the United States,
the Air National Guard
of the United States, or
the Reserve Corps of the
Public Health Service.
Where
to report. If you
have reserve-related
travel that takes you
more than 100 miles from
home, you should first
complete Form 2106 or
Form 2106-EZ. Then
include your expenses
for reserve travel over
100 miles from home, up
to the federal rate,
from line 10 of Form
2106 or line 6 of Form
2106-EZ in the total on
line 24 of Form 1040.
Subtract this amount
from the total on line
10 of Form 2106 or line
6 of Form 2106-EZ and
deduct the balance as an
itemized deduction on
line 20 of Schedule A
(Form 1040).
You cannot deduct
expenses of travel that
does not take you more
than 100 miles from home
as an adjustment to
gross income. Instead,
you must complete Form
2106 or 2106-EZ and
deduct those expenses as
an itemized deduction on
line 20 of Schedule A
(Form 1040).
Nondeductible
Expenses
Examples of nondeductible
expenses are listed next. The
list is followed by discussions
of additional nondeductible
expenses.
List of
Nondeductible
Expenses
Broker's
commissions that you
paid in connection
with your IRA or
other investment
property.
Burial or
funeral expenses,
including the cost
of a cemetery lot.
Capital
expenses.
Fees and
licenses, such as
car licenses,
marriage licenses,
and dog tags.
Hobby losses —
But see
Hobby Expenses,
earlier.
Home repairs,
insurance, and rent.
Illegal bribes
and kickbacks—See
Bribes and
kickbacks in chapter 13
of Publication 535.
Losses from the
sale of your home,
furniture, personal
car, etc.
Personal
disability insurance
premiums.
Personal,
living, or family
expenses.
The value of
wages never received
or lost vacation
time.
Adoption
Expenses
You cannot deduct the
expenses of adopting a
child, but you may be
able to take a credit
for those expenses. See
chapter 39.
Campaign
Expenses
You cannot deduct
campaign expenses of a
candidate for any
office, even if the
candidate is running for
reelection to the
office. These include
qualification and
registration fees for
primary elections.
Legal fees.
You cannot deduct
legal fees paid to
defend charges that
arise from
participation in a
political campaign.
Check-Writing
Fees on
Personal
Account
If you have a
personal checking
account, you cannot
deduct fees charged by
the bank for the
privilege of writing
checks, even if the
account pays interest.
Club Dues
Generally, you cannot
deduct the cost of
membership in any club
organized for business,
pleasure, recreation, or
other social purpose.
This includes business,
social, athletic,
luncheon, sporting,
airline, hotel, golf,
and country clubs. For
exceptions, see
Dues to Chambers of
Commerce and
Professional Societies
under
Unreimbursed
Employee Expenses, earlier.
Commuting
Expenses
You cannot deduct
commuting expenses (the
cost of transportation
between your home and
your main or regular
place of work). If you
haul tools, instruments,
or other items, in your
car to and from work,
you can deduct only the
additional cost of
hauling the items such
as the rent on a trailer
to carry the items.
Fines or
Penalties
You cannot deduct
fines or penalties you
pay to a governmental
unit for violating a
law. This includes an
amount paid in
settlement of your
actual or potential
liability for a fine or
penalty (civil or
criminal). Fines or
penalties include
parking tickets, tax
penalties, and penalties
deducted from teachers'
paychecks after an
illegal strike.
Health Spa
Expenses
You cannot deduct
health spa expenses,
even if there is a job
requirement to stay in
excellent physical
condition, such as might
be required of a law
enforcement officer.
Home
Security
System
You cannot deduct the
cost of a home security
system as a
miscellaneous deduction.
However, you may be able
to claim a deduction for
a home security system
as a business expense if
you have a home office.
See
Home Office under
Unreimbursed
Employee Expenses,
earlier, and
Security System
under
Deducting Expenses
in Publication 587.
Homeowners'
Insurance
Premiums
You cannot deduct
premiums that you pay or
that are placed in
escrow for insurance on
your home, such as fire
and liability or
mortgage insurance.
Investment-Related
Seminars
You cannot deduct any
expenses for attending a
convention, seminar, or
similar meeting for
investment purposes.
Life
Insurance
Premiums
You cannot deduct
premiums you pay on your
life insurance. You may
be able to deduct, as
alimony, premiums you
pay on life insurance
policies assigned to
your former spouse. See
chapter 20 for
information on alimony.
Lobbying
Expenses
You generally cannot
deduct amounts paid or
incurred for lobbying
expenses. These include
expenses to:
Influence
legislation,
Participate
or intervene in
any political
campaign for, or
against, any
candidate for
public office,
Attempt to
influence the
general public,
or segments of
the public,
about elections,
legislative
matters, or
referendums, or
Communicate
directly with
covered
executive branch
officials in any
attempt to
influence the
official actions
or positions of
those officials.
Lobbying expenses
also include any amounts
paid or incurred for
research, preparation,
planning, or
coordination of any of
these activities.
Dues used for
lobbying.
If a tax-exempt
organization
notifies you that
part of the dues or
other amounts you
pay to the
organization are
used to pay
nondeductible
lobbying expenses,
you cannot deduct
that part. See
Lobbying
Expenses in
Publication 529 for
information on
exceptions.
Lost or
Mislaid Cash
or Property
You cannot deduct a
loss based on the mere
disappearance of money
or property. However, an
accidental loss or
disappearance of
property can qualify as
a casualty if it results
from an identifiable
event that is sudden,
unexpected, or unusual.
See chapter 27.
Example.
A car door is
accidentally slammed
on your hand,
breaking the setting
of your diamond
ring. The diamond
falls from the ring
and is never found.
The loss of the
diamond is a
casualty.
Lunches with
Coworkers
You cannot deduct the
expenses of lunches with
co-workers, except while
traveling away from home
on business. See chapter
28 for information on
deductible expenses
while traveling away
from home.
Meals While
Working Late
You cannot deduct the
cost of meals while
working late. However,
you may be able to claim
a deduction if the cost
of meals is a deductible
entertainment expense,
or if you are traveling
away from home. See
chapter 28 for
information on
deductible entertainment
expenses and expenses
while traveling away
from home.
Personal
Legal
Expenses
You cannot deduct
personal legal expenses
such as those for the
following.
Custody of
children.
Breach of
promise (to
marry) suit.
Civil or
criminal charges
resulting from a
personal
relationship.
Damages for
personal injury.
Preparation
of a title (or
defense or
perfection of a
title).
Preparation
of a will.
Property
claims or
property
settlement in a
divorce.
You cannot deduct
these expenses even if a
result of the legal
proceeding is the loss
of income-producing
property.
Political
Contributions
You cannot deduct
contributions made to a
political candidate, a
campaign committee, or a
newsletter fund.
Advertisements in
convention bulletins and
admissions to dinners or
programs that benefit a
political party or
political candidate are
not deductible.
Professional
Accreditation
Fees
You cannot deduct
professional
accreditation fees such
as the following.
Accounting
certificate fees
paid for the
initial right to
practice
accounting.
Bar exam
fees and
incidental
expenses in
securing
admission to the
bar.
Medical and
dental license
fees paid to get
initial
licensing.
Professional
Reputation
You cannot deduct
expenses of radio and TV
appearances to increase
your personal prestige
or establish your
professional reputation.
Relief Fund
Contributions
You cannot deduct
contributions paid to a
private plan that pays
benefits to any covered
employee who cannot work
because of any injury or
illness not related to
the job.
Residential
Telephone
Service
You cannot deduct any
charge (including taxes)
for basic local
telephone service for
the first telephone line
to your residence, even
if it is used in a trade
or business.
Stockholders'
Meetings
You cannot deduct
transportation and other
expenses you pay to
attend stockholders'
meetings of companies in
which you own stock but
have no other interest.
You cannot deduct these
expenses even if you are
attending the meeting to
get information that
would be useful in
making further
investments.
Tax-Exempt
Income
Expenses
You cannot deduct
expenses to produce
tax-exempt income. You
cannot deduct interest
on a debt incurred or
continued to buy or
carry
tax-exempt securities.
If you have expenses
to produce both taxable
and tax-exempt income,
but you cannot identify
the expenses that
produce each type of
income, you must divide
the expenses based on
the amount of each type
of income to determine
the amount that you can
deduct.
Example.
During the year,
you received taxable
interest of $4,800
and tax-exempt
interest of $1,200.
In earning this
income, you had
total expenses of
$500 during the
year. You cannot
identify the amount
of each expense item
that is for each
income item.
Therefore, 80%
($4,800/$6,000) of
the expense is for
the taxable interest
and 20%
($1,200/$6,000) is
for the tax-exempt
interest. You can
deduct, subject to
the 2% limit,
expenses of $400
(80% of $500).
Travel
Expenses for
Another
Individual
You generally cannot
deduct travel expenses
you pay or incur for a
spouse, dependent, or
other individual who
accompanies you (or your
employee) on business
travel. See chapter 28
for more information on
deductible travel
expenses.
Voluntary
Unemployment
Benefit Fund
Contributions
You cannot deduct
voluntary unemployment
benefit fund
contributions you make
to a union fund or a
private fund. However,
you can deduct
contributions as taxes
if state law requires
you to make them to a
state unemployment fund
that covers you for the
loss of wages from
unemployment caused by
business conditions.
Wristwatches
You cannot deduct the
cost of a wristwatch,
even if there is a job
requirement that you
know the correct time to
properly perform your
duties.
